When government plans to extend unfair contract law to the insurance industry comes in to force, brokers could find themselves under a greater burden to ensure the policies they recommend to clients do not contain unfair terms.
It seems to be a case of when, and not if, unfair contract terms law for insurance will be introduced into the Insurance Contracts Act 1984, which until now has been excluded. Many believe it could become law this year.
The new protections will allow consumers, or ASIC, to challenge unfair terms in court.
The law does not directly apply to brokers because much of the business that will be impacted by it will be personal lines business, which is usually conducted directly without a broker.
However, law firm Herbert Smith Freehills warned that intermediaries too could find the unfair contract terms burdensome.
Partner Michael Mills told Insurance Business: “There is arguably a greater burden on brokers to consider whether policies they are recommending contain unfair terms, and either advising their clients of this or seeking to amend them with insurers.”
He advised brokers to seek to negotiate with the insurer to amend any terms which might be considered unfair in the event of a loss.
“Ultimately, they may not succeed, but if they do not try and do not identify the issues to the client they may be taken to have recommended a policy containing an unfair term,” he explained.
But the legislation could also be influential in driving insurers to amend potentially unfair terms in policy documents.
“This is significant for both retail customers and the insurance industry”, Mills explained. “It increases the potential for class actions against insurers, particularly in the context of insured events which impact multiple customers. This could be expensive for insurers but it could also drive remedial conduct so that policy wordings and practices are changed, and unfair contract term claims are avoided.”